Quick Facts

Argentina’s economic freedom score is 44.1, making its economy the 169th freest in the 2015 Index. Its overall score has decreased by 0.5 point due to declines in five of the 10 economic freedoms, including the management of government spending, labor freedom, and business freedom. Argentina ranks 27th out of 29 countries in the South and Central America/Caribbean region, and its overall score remains far below the regional and world averages.

Argentina continues to be mired in a climate of economic repression. Severely hampered by state interference, the formal economy grows increasingly stagnant as informal economic activity expands. Monetary stability is particularly weak, and there are price controls on almost all goods and services. Government interference in the financial sector further distorts price levels.

Over the past five years, Argentina’s economic freedom score has dropped by over 7 points, plunging the economy into the “repressed” category. Considerable losses have occurred in eight of the 10 economic freedoms, most notably in government spending, investment freedom, business freedom, and property rights. In the 2015 Index, Argentina has recorded its lowest economic freedom score ever.

Background

Argentina will elect a new president in October 2015. President Cristina Fernandez de Kirchner, elected in 2007 and re-elected in 2011, is constitutionally barred from seeking a third term. Argentina’s investment profile has been badly damaged by monetary and fiscal mismanagement, rising protectionism, and expropriations. The 2001 debt default remains a stumbling block. A U.S. court decision in favor of holdouts who did not accept previous restructuring offers sent the country into default again in 2014. Economic growth has plummeted, and the poverty rate has increased. Capital controls have aggravated capital flight, and the economy has dropped from third-largest to fourth-largest in Latin America. Argentina continues to claim possession of the Falkland Islands despite a vote by residents to remain under British rule.

Corruption plagues Argentine society, and scandals are common. In June 2014, Vice President Amado Boudou was charged with bribery and conduct incompatible with public office. The justice system is afflicted by scores of tenured but incompetent and corrupt judges. The lower courts are highly politicized, and the relatively independent Supreme Court has received heightened pressure from the government.

Argentina’s individual and corporate income tax rates are 35 percent. Other taxes include a value-added tax, a wealth tax, and a tax on financial transactions. The tax burden is 29.5 percent of gross domestic product. Government spending amounts to over 40 percent of GDP, and public debt is about half of the size of the domestic economy. The government is in technical default because of restructured bond payments.

Government regulation has increased, undermining efficiency and productivity growth. Establishing a new business is cumbersome, and obtaining necessary permits is costly. Reforms of the rigid labor market have long been stalled. The government underreports official inflation statistics; regulates prices of electricity, water, gasoline, and hundreds of other products; and pressures companies to fix prices and wages.

Argentina has a 5.6 percent tariff rate. Non-tariff barriers include import licensing and an official “import substitution” policy. Foreign investment in some sectors of the economy is regulated. The government exercises considerable control of financial activities. Argentina’s largest bank, which is state-owned and the sole financial institution in some areas, has been known to allocate credit based on political expediency.